UPDATE 1-German union IG Metall seeks 5.5 pct wage hike in key state

* Union demand lower than the 6.5 pct hike sought last year

* Economists expect another year of above-inflation raises

* Looming election, calls by euro partners add weight to demands

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LEINFELDEN-ECHTERDINGEN, Germany, Feb 26 (Reuters) - German trade union IG Metall is seeking a pay hike of 5.5 percent for industrial workers in the southwestern state of Baden-Wuerttemberg, a wage demand that is likely to set the tone across Germany in an election year.

The demand for around 740,000 metalworkers and engineers in the industrial heartland state, home to some of Germany's leading carmakers such as Daimler and Porsche , is lower than the union's call for 6.5 percent raise nationwide last year.

But it is expected to lead to another above-inflation increase given the relative strength of Europe's largest economy and calls from struggling European partners for Germany to do more to boost consumption.

"In the wage round of 2013 we want to provide significant impetus to boost purchasing power," said Joerg Hofmann, head of IG Metall's Baden-Wuerttemberg regional wage commission.

He added that there were no signs that the business situation of companies was about to deteriorate significantly.

The board of IG Metall is due to recommend its national wage hike demand for around 3.7 million metal and electronics worker nationwide on March 4.

Last year IG Metall secured its biggest pay rise in 20 years - a 4.3 percent wage hike over 13 months - and the federal election due in September is emboldening unions to push for more inflation-busting raises this year as they expect politicians courting votes to back their demands.

While nominal wages grew by an average 1.5 percent per year between 2001 and 2011, failing to keep pace with inflation, German paychecks outstripped a 2.0 percent inflation rate to rise by 2.6 percent last year.

Years of wage restraint in Germany helped push unemployment down close to a post-reunification low in Europe's largest economy but have also contributed to the imbalances in the euro zone which are partly to blame for the region's crisis by boosting German competitiveness.

Some economists like Peter Bofinger, one of the economic advisers to the government, say Germany should give workers strong wage hikes as that would reduce the relative competitiveness of German industry, thereby helping to even out economic imbalances within the single currency bloc.

Struggling euro zone states want strong pay rises in Germany in the hope that this will boost domestic consumption and enable them to offload more of their goods on wealthy Germans.

Rising wages, combined with a stable labour market, and moderate inflation could also lead to a welcome boost in consumption at home, which is expected to prop up growth in Germany this year even as exports to neighbouring states weaken due to the euro zone crisis.

The wages of some 12.5 million workers are up for negotiation this year and economists reckon their paychecks will outpace inflation to rise by between 2.5 and 4.0 percent. Negotiated wages climbed by an average 2.7 percent in 2012.

Negotiations for the metalworking and electronic industries in Baden-Wuerttemberg are due to start on March 21.

Other sectors are calling for even stronger wage hikes, with the construction industry seeking a 6.6 percent raise and the public sector, utility workers and Deutsche Bahn employees seeking a 6.5 percent hike.

(Reporting by Hendrik Sackmann in Leinfelden-Echterdingen; Writing by Michelle Martin in Berlin; Editing by Noah Barkin)